In December 1999, the Federal Energy Regulatory Commission (FERC) adopted Order No. 2000, its historic policy designed to further competition in the electric industry and bring lower prices to electric utility consumers through the voluntary development of Regional Transmission Organizations (RTOs) by transmission owners.

FERC’s objective in creating Order No. 2000 was to have all transmission-owning entities in the United States, including non-public utility entities, place their transmission facilities under the control of appropriate RTOs in a timely manner.

In Order No. 2000, the FERC concluded that regional institutions could address the operational and reliability issues confronting the industry, and eliminate undue discrimination in transmission services that can occur when the operation of the transmission system remains in the control of a vertically integrated utility.

Furthermore, FERC found that appropriate regional transmission institutions could:

  • Improve efficiencies in transmission grid management;
  • Improve grid reliability;
  • Remove remaining opportunities for discriminatory transmission practices;
  • Improve market performance; and
  • Facilitate lighter handed regulation.

When issuing the order, FERC emphasized its belief that appropriate RTOs “can successfully address the existing impediments to efficient grid operation and competition and can consequently benefit consumers through lower electricity rates and a wider choice of services and service providers.”

In the final rule, the Commission did not propose a “cookie cutter” organizational format for regional transmission institutions or the establishment of fixed or specific regional boundaries. To facilitate RTO formation in all regions of the nation, the final rule outlined a collaborative process. Under this process, FERC expects that public utilities and non-public utilities, in coordination with state officials, FERC staff, and all affected interest groups, will actively work toward the voluntary development of RTOs.

Lastly, under Order No. 2000, all public utilities that own, operate, or control interstate transmission facilities must file with the Commission by October 15, 2000, a proposal to participate in an RTO and functions to be operational by December 15, 2001. Or, alternatively, these facilities must file a description of efforts to participate in an RTO, any existing obstacles to RTO participation, and any plans to work toward RTO participation.

Around The Nation

Since issuing the order, FERC recently conducted workshops around the nation concerning Order No. 2000, RTOs, and how RTOs could work to prevent the abuses of market power that hinder competition:

Northeast workshop. In March, diverse electric industry constituencies met in Philadelphia and agreed on the next steps to move ahead on collaborative efforts to resolve regional transmission organization coordination issues in the Northeast. The collaborative efforts would work toward developing a broad, Northeastern electric market, including at a minimum New England, New York, and the Pennsylvania-New Jersey-Maryland (PJM) Independent System Operators (ISOs).

The three Northeast ISOs, supported by other constituencies including power marketers, proposed to open the existing interregional coordination process to all interested stakeholders and to address issues identified in the workshop. This process is the outgrowth of an interregional memorandum of understanding (MOU) among ISO New England, ISO New York, and PJM Interconnection that was entered into in August 1999.

Midwest workshop. More than 300 participants from all segments of the electric utility industry attended a Kansas City workshop on March 29, with FERC saying, “The panelists made imaginative and constructive proposals for developing RTOs in the central region of the country.” The proposals included a suggestion for one RTO to extend from the Rocky Mountains in the West to the Mid-Atlantic region and from central Canada to the Gulf of Mexico. A group of marketers were reported to be working to develop a generic RTO design.

Western workshop. On March 24, more than 400 participants from all segments of the electric utility industry attended a Las Vegas workshop arranged by FERC where there was a clear consensus that RTOs will be formed in the West. While many agreed that the ideal would be one RTO for the entire region and perhaps into Canada, there was also a consensus that practical operational, regional, and political realities would mean the creation of more than one RTO, perhaps four, in the West.

Atlanta workshop. Participants in an April FERC workshop in Atlanta generally agreed that an independent transco, a for-profit transmission company, is a preferable RTO structure. Many believe that this option will help facilitate the merger of smaller entities to improve the ultimate scope of operations.

In general, the region’s transmission-owning utilities indicated they prefer the transco approach because it continues to align ownership with operation. Several of the transmission owners said they were talking with their neighbors about RTO development.